Global Market Instability Affects Interest Rate

The global market is unstable and it is because of this instability that Australia is facing a downward pressure on its interest rate. Financial experts say that the downward movement in the country’s stock market index is a reaction to the shaky Asian markets. This may force an action of the Reserve Bank in the upcoming months. On the other hand, the Colonial First State head of market and economic research contended that it is unlikely that the interest rate will change. According to him, it is most likely that they will leave the rate unchanged at just 2 percent.

What is the implication of the volatility of the global markets with Australia’s future? The high level of volatility of financial markets along with the weakness shown by the Chinese economy shows a downside risk to the interest rate of Australia during the remainder of the year.

While most experts are anticipating that the rate will remain at 2 percent, there is also that risk that RBA will be forced to lower the interest rates in order to protect the economy from being further weakened by the global economy.

However, there are factors that present a stronger case for leaving the interest rate on hold and that are the gradual decrease in the unemployment rate in the country. The RBA indicated in the August Statement on Monetary Policy that Australia was now facing the peak of its unemployment rate. Given this condition, the likely move will be to hold the interest rates at their historic lows and then extend this for a period of time until the world financial market becomes stable once again.

If the interest rates will be kept steady at 2 percent, this will mean that Australians have already enjoyed a cash rate of below 2.5 percent for at least 2 years in a row. The interest rates were decreased to 2.5 percent last August 2013 and since then have not risen. Financial planners urge people to save should there be a series of quick rise in interest rates.